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The real estate act, passed by the Rajya Sabha on Thursday, will help reshape the entire sector and play an important role in reviving the economy as a whole.

The Real Estate (Regulation and Development) Act will go a long way in reviving the real estate sector, as it will bring in transparency and financial discipline say consultants, developers, investors, and end users.

As the new law includes current projects under its ambit, developers are now obliged to set a timeline for their completion. But, first, each state government will have to appoint a Real Estate Regulator and frame the regulations.

This comes as a signal relief to home-buyers who have booked or bought houses in projects that have seen staggering delays in delivery, as the new law will increase their chances of getting possession of their houses at a predetermined, early date.

As for new buyers, once a project is registered, a prerequisite before any launch, the chances of timely delivery will improve vastly. This will bring back the confidence of buyers and help revive the sector. Anuj Puri, chairman and country head of JLL, India, says: “The enactment of RERA will almost single-handedly revamp the way this sector works across the board, from developers to end users and investors, to lending institutions and government agencies involved in buying and selling property. It is by far the most decisive step in taking the sector towards transparency and reaching towards the kind of standardized processes, procedures, and accountability guidelines that the industry requires to progress.”

Even developers and builders have welcomed the act, despite the fact that it is to regulate their business practices which brought notoriety, many confess in the hope that it will help revive the sector, facing an acute slowdown for some time now.

Currently, the sector is plagued with problems of delay sometimes extending up to even 10 years in the completion of projects. Of course, it is not that developers alone are to be blamed government agencies and court judgments are among the leading contributors to delay in projects.

But, the worst part is that developers hardly pay any penalty to customers. In the end, buyers take a double whammy in the form of EMIs on the home loan for houses under construction, even as they pay a matching amount on their rented houses. This turned away potential buyers from the market, which has led to the current slowdown in the sector.

The new act has a provision of stiff penalty for project delay and stipulates that builders have to pay the same interest to customer that the banks charge on their loan amount.
real estate“If implemented in the right spirit, this law will help revive home-buyer confidence in the property market and could facilitate greater volumes of domestic as well as overseas investment flows into the sector,“ Anshuman Magazine, chairman and MD of CBRE, South Asia, said.

Also, the act has to be re-enacted in every state, as real estate is a state subject. Each state will have to frame rules to regulate the sector and appoint a regulator who will adjudicate the regulatory framework.

However, the developers’ community has stoutly opposed the provision in this law to bring current projects under its ambit.

As Union Cabinet cleared Real Estate (Regulation and Development) Bill, 2015 with certain amendments and changes, real estate stakeholders have welcomed the changes. However, they are still apprehensive about the functioning of the regulator.

The changes in the Bill that will bring change:

1. Small projects to get included under the purviewEarlier: Minimum size of 1,000 sq mt will have to register with the authority.Now: Projects on at least 500 sq mt of area or with eight flats will have to be registered with the proposed regulatory authority. This will bring a larger number of projects under the regulator’s ambit.

2. More money in escrow accountEarlier: Builders have to deposit at least 50% in an escrow account to meet construction cost.Now: Builders have to deposit 70% of the sale proceeds, including land cost, in an escrow account and pay interest to home buyers for any default or delays at the same rate they charge them.

3. Term of ImprisonmentThe term of imprisonment of three years has been upheld for all contraventions and in cases where the builder does not abide by the decision of the regulatory body imprisonment has been recommended.

4. Carpet area and garageCarpet area is now defined as the net usable area. Apart from this, garage will be not be included in the definition of apartment.

5. Formation of RWAsIt will be compulsory to form resident welfare association within three month of possession.

6. Buyer can appeal to Consumer CourtNow, even consumer court can hear real estate cases other than the appellate authority.

7. Builder answerable for structural defectBuilders will be liable for structural defects for five years, instead of two years as proposed earlier.

8. Insurance of land titleThe Bill proposed enabling provision for arranging insurance of land title, which is currently not available. This will benefit buyers in situations where the title of the land is held invalid.

Too much to handle:Although the approved proposal has brought even the smaller projects under its purview, the volume of projects would be too much to handle. “Given the quantum of projects that the state regulator will have to cover now – due to norms on size of projects having been relaxed further from 1,000 sq.m. to 500 sq.m. – the onus on the state regulator will be huge, particularly for realty-heavy states like Maharashtra, Karnataka, etc,” says Anuj Puri, Chairman and Country Head at JLL India.

Another point raised by the industry leaders is of single window clearance. According to them, without ease of business for developers, it would be very difficult for the authority to work in the fairest way.

“The ease of doing business needs to be implemented in the real estate sector by making it easier for doing development by time bound approval mechanism by the government/local/ urban bodies. Therefore the government bodies also need to be held accountable for ensuring reforms in archaic laws and timely project approvals,” Anshuman Magazine, Chairman & MD CBRE South Asia Pvt. Ltd.

Flow of FDI to rise?As Real Estate Regulatory Bill, 2015 has got cabinet nod, the bill is expected to bring transparency, defined rules and regulations. Consequently it would work as a confidence booster for foreign direct investors.

“The bill will help increased domestic and foreign investment in real estate sector which will be in line with the government’s objective to provide ‘Housing to all by 2022’. Registration of both the residential and commercial projects will be made mandatory and any harassment of buyers will also be checked. Overall, with the passage of bill, there will be fair play in real estate transactions in addition to ease of doing business,” Says Om Chaudhry, Founder & CEO of FIRE Capital.

Whereas the developers are expecting more professionalism and ease of doing business for them. “As a developer, we are hoping that the amendment would promote speedy approvals and execution of projects, bring about professionalism and accountability in real estate transactions and give a push to the investment sentiment in the sector,” Vineet Relia, managing director, SARE Homes.

Test:As the winter session is expected to see passage of Real Estate Regulatory Bill, it would be interesting to watch out whether too much of responsibilities will make the authority more powerful or burdened.

The Union Cabinet on Wednesday approved several amendments to the Real Estate (Regulation and Development) Bill, 2015 aiming at protection of interests of buyers as well as promoting investments in the sector.

These amendments were based on the recommendations of the Select Committee of Rajya Sabha which had examined the Bill and the official amendments proposed earlier. The Bill will now be taken up for consideration and passing by Parliament. It facilitates the establishment of ‘Real Estate Regulatory Authority’ in States/UTs to regulate transactions. Real estate projects and real estate agents need to be registered with the Authority. Commercial projects are also under the ambit of the regulator now, an official statement said.

Developers will need to submit disclosures of all registered projects, including details of the promoter, project, layout plan, land status, approvals, etc. The amendments include mandatory registration with Real Estate Regulatory Authorities of projects of 500 sq m area or 8 flats instead of 1,000 sq m or 12 flats earlier proposed, bringing more projects under the ambit of the Bill.

“Moreover, developers will need to deposit 70 per cent of the sale proceeds (including the land cost) in a separate escrow account to meet the construction cost,” an official from the Ministry of Urban Development told BusinessLine.

Penalty clause:In case of default or delay, promoters and buyers will be required to pay an equal rate of interest.

New provision for imprisonment of up to three years in case of promoters and up to one year in case of real estate agents and buyers for violation of orders of Appellate Tribunals or monetary penalties or both has also been included.

A Parliamentary Committee today recommended a slew of measures favouring property buyers, which include a three-year jail term or a fine for a defaulting builder under a new law which will now cover projects of 500 sq. m. or eight flats.

The Select Committee of Rajya Sabha, which examined the Real Estate Bill 2013 and submitted its report in the House today, also recommended that 50 per cent of payments made by home-buyers for a real estate project should be kept in a separate account and used for that specific purpose only while the rest can be spent on other projects.

The Bill aims at establishing the Real Estate Regulatory Authority (RERA) for regulation and promotion of the sector and setting up of an adjudicating mechanism for speedy dispute redressal. It also aims at establishing the appellate tribunal to hear appeals against the decisions of the RERA.

Under the proposed new law, a jail term of up to three years or a penalty of up to 10 per cent of project cost or both can be imposed on a builder in case of defaulting on commitments made to a buyer.

The committee also recommended that the new law should cover projects of 500 sqm and more or eight flats, instead of 1000 sqm or 12 flats as proposed initially in the bill.

The panel recommended that promoters should get their accounts audited within six months after the close of every financial year by a practising chartered accountant.

It was also of the view that real estate development beyond town planning area may be brought under the ambit of the Bill.

The committee, however, did not agree that a person holding more than two apartments or plots in the same project should be treated as a promoter.

It said that a promoter, while applying for registration of any project with the authority, should enclose details of its existing projects, details of approvals, land title and payment dues.

The panel also redefined the carpet area, saying it means the net usable floor area of an apartment, excluding the area covered by the external walls and that under service shafts, exclusive balcony or verandah and open terrace areas, although it would include the area covered by the internal partition walls of the apartment.

To protect small property buyers, a parliamentary panel is understood to have recommended to cover housing projects on land below 1000 sq metre in the proposed Real Estate Regulatory Bill.

According to the original provision in the Bill, builders could register with the regulator only if the project was on land exceeding 1000 sq metre.

The Real Estate (Regulation and Development) Bill has been referred by Rajya Sabha to a Select Committee on May 6 for its examination with instruction to submit its report by the last day of the first week of the next session of Parliament, which is the current monsoon session.

The 21-member committee headed by BJP member Anil Madhav Dave is likely to submit the report this week.

The Bill seeks to establish the Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to ensure sale of plot, apartment or building in an efficient and transparent manner, to protect the interest of consumers in the real estate sector and to establish Appellate Tribunal to hear appeals from the decisions, directions or orders of the authority.

The panel has not changed the penalty provisions of the Bill and retained the original proposal such as imprisonment of developers for any violation of the proposed law.